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This the "Joint Hypothesis Problem". Basically, any test for abnormal returns is also implicitly a test of the model you use to define "abnormal". If you see a significant and positive $\alpha$, that could either mean that you actually are generating excess risk-adjusted returns, or it could mean that your risk model is incomplete. This is basically what ...


2

The coefficients assuming they are statistically significant can be interpreted whether or not the underlying portfolio is efficient. The CAPM or FF4 simply tries to decompose a portfolio into a series of linear exposures + an intercept (alpha) which can be viewed as constant added value. In mathematical terms the regression is explaining how much of ...


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Supply and demand... If you want an event that produce a change in the value of a currency, just look at the ruble. As Russia, gets more and more isolated and inflation spins out of control the ruble lose its value against other currencies.


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Let $X$ be endowed with the following partial order: $y \geq x $ means that $\Bbb P(y\geq x) = 1$. The AOA condition in your case states that the pricing law $p$ is strictly inctreasing with respect to $\geq$, whereas LOP says that $p$ is a linear function. Neither if the two implies another one in general. For example, if $X = \Bbb R$ then $p(x) = x^3$ is a ...



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